China: Multiple Crises Instead of Hegemony

Why the state-capitalist People’s Republic will not be able to succeed the USA as a hegemonic power

Tomasz Konicz

Launched in 2013, the New Silk Road, Beijing’s ambitious investment program in developing and emerging countries, was supposed to usher in an era of Chinese hegemony and make the 21st century a Chinese century – after the 20th century went down in history as the period of US hegemony. Beijing has budgeted more than a trillion US dollars for this strategic development program, which evokes memories of the US Marshall Plan in devastated postwar Europe. Just as Washington used Marshall Plan funds to rebuild Europe after 1945, while emerging as the undisputed leading power of the West in the second half of the twentieth century, the huge Chinese loans to many peripheral countries were motivated by a similar strategic calculation.

According to this calculation, the infrastructural development boost that the construction of power plants, railways, or roads should trigger in the “developing countries” would go hand in hand with close strategic ties between these countries and China. Beijing would thus buy geopolitical dominance through credit-financed economic development in many regions of Asia, Africa and even Latin America. China, which has long since become the leading trading power in most regions of the global South, would thus become the most important lender and strategic partner that could build up its own alliance system around the People’s Republic – similar to the “West” with the US as the leading power.

A Gigantic Investment Program and Its Spiraling Debt

By the end of 2021, the People’s Republic had invested the equivalent of $838 billion in this ambitious development program, which made China “the world’s largest bilateral lender,” according to the Financial Times (FT).[1] This preeminent position is especially true for the periphery of the world system, as Beijing has lent more to the 74 countries classified by the World Bank as low-income than all other “bilateral creditors combined.” The Belt and Road Initiative, as the “New Silk Road” investment strategy is known in English, was not only the People’s Republic’s largest foreign policy venture since its founding in 1949, but also the “largest transnational infrastructure program” ever undertaken by a single country. Even the Marshall Plan, which today would be equivalent to around 100 billion dollars of investment, pales in comparison to the “New Silk Road.”[2]

And it is precisely this gigantic investment program that is causing China’s first major international debt crisis. More and more of the debtor countries on the “New Silk Road” are being forced to ask China to defer payments or renegotiate loan terms. According to calculations by US think tanks, about $118 billion in Chinese loans are at risk of default, or about 16 percent of the total investment in the “New Silk Road.”[3] Countries in Africa, South Asia and Latin America – the Financial Times (FT) continues – that have been set back economically by the latest wave of crises triggered by the pandemic are affected. According to the report, Beijing had to renegotiate the terms of foreign loans worth $52 billion in the pandemic years 2020 and 2021, compared with only $16 billion in debt in 2018 and 2019.

Negotiations between Beijing and borrowers from the global South revolve around partial write-offs of the loan amount, payment delays, or interest rate cuts. In addition, Beijing is increasingly having to provide emergency loans in order to maintain the solvency of its debtors on the periphery of the global system. As a result, according to the FT, China increasingly finds itself in a “role usually played by the International Monetary Fund (IMF)” in many of the large-scale credit-financed investments under the “New Silk Road.” Ironically, the IMF, whose crisis loans have been tied to draconian austerity measures for decades, called on China and other creditors in mid-July to make concessions to faltering debtor countries as large parts of the global South threaten to collapse in the face of a dramatic debt crisis. According to the IMF, “one-third of emerging market economies and two-thirds of developing countries are in distress because of high debt.”[4]

Meanwhile, Beijing has emerged as a “serious competitor to the IMF” after the People’s Republic had to issue secret “emergency loans” and bailout packages worth tens of billions of dollars to over-indebted states to prevent defaults or debt crises, the FT said, citing studies by US research institutions.[5] According to the report, Beijing’s three biggest debtors alone – Pakistan, Sri Lanka and Argentina – have received bailouts worth $32.8 billion since 2017. The list of countries that have had to be stabilized by Beijing through crisis loans includes Kenya, Venezuela, Angola, Nigeria, Laos, Belarus, Egypt, Turkey and Ukraine. For the most part, these emergency loans have prevented infrastructure projects financed under the New Silk Road from going bankrupt.

In this way, Beijing has often been able to prevent failed major projects from leading to payment crises or sovereign defaults. And China is a more popular creditor than the IMF because, according to the FT, the People’s Republic keeps its debtor states “afloat with ever new emergency loans” without demanding that the debtors “restore economic discipline” or carry out the infamous “structural adjustments” with which the IMF has wreaked economic havoc on much of the periphery of the world system since the debt crises of the 1980s. One Western analyst told the FT that there is a suspicion that countries with debt problems prefer Chinese loans in order to “avoid going to the IMF,” which demands “painful reforms.” But this only delays the inevitable “adjustment” and makes it “even more painful.” In any case, many of China’s Silk Road loans follow a geopolitical logic of creating dependencies with debtor countries in order to “limit the strategic options of the US and the West.”

Geopolitical Dimensions of Investment

The geopolitical component of China’s investment strategy is particularly evident in the high level of lending in the post-Soviet region, where Beijing has invested a good 20 percent of the funds it has earmarked for the “New Silk Road.”[6] At $125 billion, the largest share of Chinese loans has gone to Russia, followed by Belarus with eight billion dollars and Ukraine with seven billion dollars. These gigantic investments by Beijing are now threatened by the war in Ukraine, which Russia currently appears to be losing – and which could lead to a collapse of Russia’s sphere of influence. China’s investment strategy in the region literally depends on the outcome of the war. After all, even in such a case, Beijing can hope to recoup some of its loans through in-kind payments. Under loan agreements, Russia can settle outstanding payments in oil or natural gas, making a total default on loans extended to Russia unlikely.

Another focus of Chinese investment activity is sub-Saharan Africa, where, according to Western estimates, the People’s Republic granted loans worth around 78 billion dollars.[7] Although this represents only a small share (12 percent) of the foreign debt held by this largely economically isolated region of the world, with private Western lenders holding 35 percent of the total debt, China has been able to make up ground here in recent years. Between 2007 and 2020 alone, Beijing lent $23 billion in public-private partnerships in the sub-Saharan region, while the United States, Japan, Germany, the Netherlands and France together invested only $9.1 billion.[8] China is in demand as a lender in the region because Beijing’s lending terms are far more favorable than those of Western institutions. Interest rates on Western loans are said to be twice as high as those offered by the People’s Republic.

And it is not only developmentally nonsensical, corruption-ridden prestige projects, as was the case in Sri Lanka, that are being implemented in Africa. In Ethiopia, for example, Chinese capital financed a railroad that cut travel time between the capital and neighboring Djibouti from three days to 12 hours. In Kenya, a new line was built between Mombasa and Nairobi; a new rail link between Tanzania and Zambia also drastically reduced travel time; dams were built in Uganda; and roads and infrastructure projects for water supply and electrification were pushed forward in Africa or Central Asia. The Chinese strategy of accumulating geopolitical influence through economic development seemed to be working in Africa until the recent crisis.

The Illusion of Recuperative Development

But even projects that make sense in terms of development policy are increasingly reaching their economic limits due to the growing global crisis: The railway line between Nairobi and Mombasa, built in four years by the state-owned Chinese Road and Bridge Corporation, is said to have incurred a loss of some $200 million within three years. Meanwhile, China is said to have accumulated by far the most default-prone loans in sub-Saharan Africa. More than a hundred loan agreements have had to be renegotiated in the region, compared with 21 in Asia and only 12 in Latin America.[9] A prime example of the collapse of this Chinese development and hegemonic strategy in the face of late capitalist crisis realities is provided by the South African country Zambia, which went bust on its foreign debt of $17 billion in 2020. China had previously built a railroad to Tanzania, a hydroelectric power plant, two airports, two sports stadiums, and a hospital in Zambia in investment projects worth six billion dollars.

Outside of Africa and the post-Soviet space, it is not Sri Lanka but Pakistan that has seen the most rapid influx of Chinese investment in recent years. In Sri Lanka, Chinese loans amount to a mere five billion dollars, or just ten percent of the total liabilities of the economically collapsed state, where corruption and mismanagement culminated in absurd investment projects that contributed to the disastrous aggravation of the current crisis.[10] $62 billion flowed from the coffers of the Belt and Road Initiative went to Pakistan, which has always been of high strategic importance to Beijing as a counterweight to China’s geopolitical rival India.

Beijing’s investment activities have ranged from infrastructure projects, with funds flowing into energy generation and transportation, to the strategic expansion of the port of Gwadar, to the establishment of manufacturing facilities in Pakistan to take advantage of the country’s very low labor costs.[11] This development of “extended workbenches” in Pakistan, to which labor-intensive manufacturing activities were outsourced, sometimes took place not only in the economic centers of Pakistan, but also in the unstable periphery, such as the province of Chaibar Pachtunchwa, which was plagued by Islamism and ‘tribal struggles.’

Hopes for capitalist modernization were dashed by 2020 at the latest, as some of China’s investment projects were put on hold after the outbreak of the pandemic and the ensuing economic crisis, while the crisis quickly made Pakistan’s debt burden unsustainable. Work on the Gwadar port project, for example, is said to have largely stopped.[12] In order to avoid bankruptcy as a result of the unfolding downward economic spiral,[13] in which inflation, rising borrowing costs and collapsing government revenues rapidly eroded foreign exchange reserves, Islamabad had to resort to emergency loans from both the IMF and China – by July 2022, Pakistan’s foreign exchange reserves were only enough to cover the cost of the country’s imports for two months. Chinese banks had been extending “a number” of loans to the country on an ongoing basis, most recently to the tune of $2.3 billion in mid-2022, to shore up its dwindling “supply of hard currency.” The IMF, meanwhile, has pledged more than seven billion in crisis loans to Islamabad.

At least until early August, the impoverished country, plagued by Islamism and state erosion, appeared to have averted acute national bankruptcy after reaching a new loan agreement with the IMF, accompanied by the usual harsh austerity measures, such as higher taxes and cuts in energy subsidies.[14] But then came the historically unprecedented floods, the frequency of which, like other extreme weather events, is increasing because of the climate crisis.[15] About one-third of Pakistan’s land area was inundated, and more than 33 million people were affected by the floods. The country now faces a hunger crisis and rising extremism,[16] while the economy is on the verge of collapse.[17] Initial estimates by Pakistani government ministers put the cost of the floods at around ten billion dollars.[18]

The increasingly manifest interaction of a debt crisis and the climate crisis,[19] of internal and external limits to capitalism’s ability to develop, devastated entire regions of Pakistan in August that were already suffering from a severe economic crisis, devastation that was largely ignored in the West. This is the global crisis environment of a late capitalist world system that is collapsing because of its contradictions, in which China has launched its grand attempt to build its own system of alliances through an ambitious investment program in order to emerge as the new hegemon. Mounting global debt and the escalating climate crisis are throwing a wrench into Beijing’s imperial calculus, which sought to emulate the rise of the United States after World War II.[20]

Washington’s hegemonic rise after the end of the Second World War, however, took place against the backdrop of the long Fordist boom period of the 1950s and 60s, the “economic miracle,” as it is idealized in Germany. Mass motorization and the total penetration of all areas of post-war societies by the logic of valorization, heralded by the total mobilization of the war economies,[21] made it possible to utilize gigantic masses of labor in the labor-intensive accumulation process for almost two decades. This Fordist regime of accumulation, with the automobile industry as its leading sector, formed the economic basis of US hegemony until it was phased out in the 1970s,[22] only to be replaced under neoliberalism by the financialization of capitalism – in effect, the increasing global accumulation of deficits leading to ever new financial bubbles and debt crises.

In the “Cold War,” the USA was able to emerge as the unchallenged and accepted leading power of the “West,” the hegemon, not least because the prolonged economic boom enabled Washington to grant its allies room for economic development – which Japan and West Germany also made ample use of in the course of the “economic miracle,” soon surpassing US industry in terms of quality. The rapidly rising tide of Fordism lifted all boats. As long as capital was able to expand into new markets (cars, “white goods,” consumer electronics, etc.) that had only emerged during Fordism, the competition between the “economic locations” remained in the background – even in the face of the “clash of systems.”

The Impossibility of a New Hegemonic System in The Crisis of Capitalism

China, on the other hand, has to operate in a crisis-ridden world system in which the extremely high global productivity level of commodity-producing industry has led to a systemic crisis of overproduction, resulting in constantly rising mountains of debt, since the hyper-productive system is effectively running on credit. Moreover, the lack of a new leading sector and regime of accumulation leads to an increasing export fixation of economic policies and corresponding trade wars, in which the core capitalist countries try to support their economies with export surpluses – at the expense of the competition, which often reacts with protectionist measures. The pursuit of export surpluses, perfected above all by the FRG within the framework of this beggar-thy-neighbor policy, with which the systemic crisis of overproduction is to be “exported,” is thus a source of permanent inter-state tensions between the “economic locations” threatened with decline.

And these are precisely the reasons for the almost insurmountable obstacles that stand in the way of the construction of a hegemonic system in the current world crisis of capital. Hegemony, i.e. the leading position accepted or tolerated by the subordinate powers of a power system, is now only conceivable at the price of credit financing, since there is no economic basis for it in the form of a new regime of accumulation. According to the FT, China’s foreign exchange reserves have already shrunk from four trillion dollars to three trillion dollars, partly due to the massive investments in the “New Silk Road,” and Beijing’s lending abroad has also collapsed massively. While the People’s Republic made more than 55 loans worth more than a billion dollars each in 2015, it made less than ten in 2021. But the drying up of Beijing’s generous financial flows, which used to stimulate the economies of Africa and Asia, is exacerbating the current crisis on the periphery of the world system. China can thus lend and gain influence in the short term, over a number of years, but because of the high level of global productivity, it cannot create a new leading sector that would utilize a sufficient mass of waged labor in the production of commodities.

And China itself, as part of the world system, is affected by the world crisis of capital. This is particularly evident in its tendencies towards a beggar-thy-neighbor policy, since the state-capitalist People’s Republic is also striving to achieve the highest possible export surpluses at the expense of its competitors, which counteracts the formation of hegemony. Due to the simmering debt crisis[23] in China’s anemic real estate sector[24] and the pandemic-induced slowdown in the domestic economy, export surpluses are becoming increasingly important in terms of economic policy, even for Beijing. Last June alone, China ran a trade surplus of $98 billion – a new record![25]

It is not only in the US that China’s surpluses are reflected in corresponding deficits. The group of ASEAN countries in China’s immediate Southeast Asian neighborhood ran a $17 billion trade deficit with China in the same period. Instead of building a hegemonic system in which China’s neighbors also benefit economically from the rise of the People’s Republic, a fierce battle for market share is now underway, Reuters noted, as we find ourselves in a world where “absolute demand” is falling and there will be “brutal price wars” for shares of the “shrinking pie.”

China’s Changing Position in The World Economy

The “workshop of the world” thus seems to be returning to the origins of its meteoric rise, which in its initial phase was driven by an extreme export orientation, by the achievement of gigantic export surpluses. Until the global financial crisis of 2007/2008, triggered by the bursting of the transatlantic real estate bubble in the US and the EU, the export industry functioned as China’s main economic engine. The extreme Chinese trade surpluses vis-à-vis the “deficit economies” of the USA and parts of Europe, which were running on credit, not only drove the export industrialization and modernization of the People’s Republic, but also went hand in hand with the export of debt. The Federal Republic of Germany, the multiple “export surplus world champion,” also engaged in the practice of exporting debt until recently.[26]

However, the Chinese accumulation model changed fundamentally with the crisis surge of 2008, the bursting of the housing bubble in the US and Europe, which was countered globally with enormous economic stimulus measures. In fact, the massive government demand stimulus that Beijing unleashed through several economic stimulus packages made the Chinese economy the global economic locomotive in 2009.[27] But the Chinese government’s gigantic support measures in response to the 2008 crisis also provided the initial spark for a transformation of China’s economic dynamics: exports lost weight, and the credit-financed construction industry, infrastructure, and the real estate sector became the central drivers of economic growth – culminating in today’s absurdly high 29 percent share of GDP.[28] China’s export-driven modernization, with its export of debt that at times made the US the People’s Republic’s largest debtor, thus turned into a state-fueled deficit economy – one that has long since escaped state control.

China’s Real Estate Bubble

The Chinese deficit economy, which created a gigantic real estate bubble, experienced its first major crisis in the summer of 2021, when one of China’s largest real estate companies, Evergrande, was on the verge of bankruptcy. The group, which was saved from bankruptcy by the Chinese government in early 2022 through a “restructuring program,”[29] has accumulated $300 billion in debt, $20 billion of which is owed to foreign investors. Domestically, more than 1.5 million real estate buyers are waiting for the completion of homes already planned and paid for at 500 construction sites. Meanwhile, the group’s creditors are fighting over who will bear the inevitable losses.[30]

How big is the real estate and debt bubble created by Chinese state capitalism– and can it stand up to comparison with the housing speculation in the US in 2008? In a study of this speculative dynamic, US economist Kenneth Rogoff concluded that China’s construction and real estate sectors directly and indirectly generate about 29 percent of China’s gross domestic product (GDP).[31] This means that the bubble in the state-capitalist “People’s Republic” need not fear comparison with the West, not only in absolute terms, but also in relation to its economic output. In Spain, at the height of the transatlantic housing bubble in 2006, the real estate sector accounted for about 28 percent of GDP, while in Ireland it was about 22 percent.

The situation is even more dramatic when the price level in the main housing markets of the People’s Republic is compared to the wage level. In Beijing, Shanghai and Shenzhen, more than 40 average annual salaries are needed to buy a property, compared to 22 in London, one of the most expensive cities in the West, and ‘only’ 12 in New York. Rogoff spoke of the “breath-taking” and, for large economies, “unprecedented” extent to which China’s financial market-driven state capitalism drove its housing bubble. This is also evident from the ratio of living space to population, which, according to Rogoff, has long since reached the level of France and Great Britain in the People’s Republic – and even exceeds that of Spain. If the construction fever were really about providing people with housing, China’s real estate market would have been saturated long ago.

Thus, the Evergrande debacle is indeed only the proverbial tip of the iceberg in an authoritarian Chinese state capitalism that shares a fundamental crisis tendency with its Western competitors: it runs on credit. In 2020, all of China’s accumulated liabilities (government, private sector, financial sphere) amounted to about 317 percent of the People’s Republic’s GDP,[32] which was only slightly behind the global average of 356 percent.[33] Despite declarations by the leadership in Beijing and intensified efforts to curb lending, China’s mountain of debt has been growing faster than the GDP of the “workshop of the world” since 2008 – as is the case in many of China’s debtor countries.

But all of Beijing’s official figures should be taken with a grain of salt, as much is simply swept under the rug in China. China’s local governments are also said to be saddled with a gigantic mountain of debt, which Goldman Sachs estimates could be as high as $8.2 trillion – the debt has been outsourced to “financing vehicles,”[34] so as not to show up in the statistics.[35] That would be about 52 percent of the People’s Republic’s GDP. Incidentally, in the course of the real estate boom, the over-indebted municipalities have tapped into an important source of financing: they sell land to real estate companies, which build their speculative properties on it. The officially unrecorded mountain of debt that China’s shadow banks are said to have accumulated is estimated at $13 trillion.[36]

Multiple Crises as An Expression of The Crisis of Global Capitalism

As a result, China’s leaders are facing not only an external but also an internal debt crisis that is not only strikingly similar to the real estate bubble that burst in the West in 2008, but also reminiscent of the distortions in many of the People’s Republic’s debtor states. So far, Beijing has been able to delay the bursting of this bubble through a series of interventions and financial injections, but at some point the devaluation process will inevitably have to take place – especially as the political fallout from China’s internal debt bubble grows: In Zhengzhou, the capital of the central Chinese province of Henan, for example, angry bank customers recently clashed with police as they protested the freezing of their accounts after local banks were embroiled in a scandal and collapsed.[37] The Chinese Communist Party has also had to deal with a mortgage strike by angry home buyers who have stopped paying their mortgages en masse while waiting for their homes to be completed.[38]

Finally, the climate crisis is not stopping at the People’s Republic, which, with its global investment program, is trying to export its own fossil-fuel driven modernization model, which has made China the world’s largest emitter of greenhouse gases, to the periphery and semi-periphery of the capitalist world system, since the new “renewable” industries that are supposed to enable the ecological transformation of capitalism are too capital-intensive and utilize too few workers.[39] Not only Pakistan, which is indebted to China, but also the People’s Republic itself suffered historically unprecedented weather this summer with a combination of prolonged drought and an extreme heat wave[40] that put pressure on energy supplies, economic activity and food security.[41] The sweltering heat literally shut down production, not only diminishing China’s growth prospects, but also threatening to put a strain global supply chains.[42]

The struggle against climate-induced societal collapse that emerged in this year’s summer of horrors, not only in China but also in the EU and the US, is thus likely to make the very idea of global hegemony seem absurd in the years ahead. With the crisis-induced increase in inter-state tensions and struggles, which escalated into a neo-imperialist war in Ukraine, the rotten late-capitalist state behemoths will be more concerned in the coming years with passing on the consequences of the crisis to their competitors in order to delay their own collapse.





















[21] Robert Kurz, “Freie Fahrt ins Krisenchaos: Aufstieg und Grenzen des automobilen Kapitalismus” in exit! Krise und Kritik der Warengesellschaft, no 17, 2020, 23-44.

[22] https://www.untergrund-blä












[34] LGFV: local government financing vehicles. Financing companies established for the purpose of financing specific infrastructure projects. Their liabilities are traded on the financial markets, but do not appear in the statistics as government debt.









Originally published on in 10/2022

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